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Raising Finance to buy a Franchise

Written by: Nick Strong

Article Overview: How approachable are banks when it comes to raising capital to buy a franchise?

Raising Finance to buy a Franchise

Raising finance for a franchise is not as daunting as it may seem. Most of the main banks have a dedicated franchise sections that are only too happy to provide finance for the purchase of a franchise, although it should be noted that it is mainly the individuals that they assess, rather than the franchise. The banks are however very interested to see how franchisee's accounts perform and have their own internal records that outline the success levels of many franchise businesses.

People are usually able to borrow more to establish a franchised business than they would for a conventional start-up venture. All the banks recognise that franchising is usually a safer way to get into business and, for established and proven franchise systems, they are prepared to lend, subject to status, up to 70% of the start-up costs including working capital. For a new, or less established franchise, this figure is nearer to 50%, much the same as a conventional business. Usually it is easier to get funding for a British franchise Association member franchise as these franchises have been accredited on merit of good practise and franchisee performance.

Typically the borrowing will be taken as a fixed rate loan repayable over a term no longer than that of the franchise agreement. Variable rate loans are also available if you want to gamble on interest rates. Some of the borrowing could also be taken as an overdraft to provide an element of working capital. Certainly the VAT element of any franchise fee is normally funded by way of overdraft until it is refunded by HM Customs. If you go VAT registered as a franchise business you will soon get the VAT back anyway.

The types of lending discussed so far are normally arranged at local Business Centres and security for any borrowing may be required. Security is usually provided in the form of a second mortgage over property but could also include a charge over surplus cash, insurance policies or stocks and shares. If there is no security available the bank can look for a guarantee, up to 75% of the amount borrowed, from the Department of Trade and Industry’s Small Firms Loan Guarantee Scheme. The remainder is considered as unsecured borrowing. Your bank manager or local Business Link will be able to advise you how to apply for this if required.

Where it is an automotive franchise vehicles or equipment are required for the franchise these can be financed under a lease or hire purchase agreement. Some franchisors will have facilities in place with known companies assisting with this type of finance, such as Lombard Business Finance. The rates on any lending can vary depending on the contribution, security and track record of individuals. Examples of Atomotive franchises can be found at www.selectyourfranchise.com/uk/franchise-directory/Automotive-Franchise.html - 20k -

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Related Forum Posts
Re: Finance is the primary requirement of business - [quote="rauljoseph":36x8dadn]Finance is very important in a business. It is all about managing the business' money and other assets. Finance includes the study and analysis of processes, financial institutions, markets and instruments that are involved in the transfer of money or anything that has a monetary value among consumers, businesses and government.[/quote:36x8dadn] Good point. I'll just add that if I was going into business for myself and could only have one skill it would be Sales & Marketing. You need to be able to create customers first and foremost. Finance is more of a support function for entrepreneurs.
Finance is the primary requirement of business - Finance is very important in a business. It is all about managing the business' money and other assets. Finance includes the study and analysis of processes, financial institutions, markets and instruments that are involved in the transfer of money or anything that has a monetary value among consumers, businesses and government.
Re: Enticing Franchises - Top 9 List - All Franchise listed above are in millions of dollars. Do you have the list of Franchise in thousands
Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]


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